The Betting Market for War

It's Wednesday, March fourth, and welcome to HigherIQ. Over the weekend, someone using the username "Magamyman" made more than half a million dollars on an online platform by betting on the exact timing of the U.S. strikes on Iran. The first bet was placed seventy-one minutes before the news broke publicly. And this wasn't a one-off. The same account correctly predicted the date of Israel's October 2024 strike on Iran, bet accurately on the fall of Assad in Syria, and cashed out on the Maduro arrest in Venezuela. Six brand-new accounts, all funded within twenty-four hours of the attack, collectively won one point two million dollars betting on a war before it started. The platform is called Polymarket. And if you haven't heard of it, or its main competitor Kalshi, you're about to, because prediction markets are one of the fastest-growing corners of finance right now, and almost nobody is watching the door. Today, we're doing a deep dive into what these platforms are, how they found a legal loophole that lets them operate as sports betting sites in all fifty states, and why the line between informed trading and insider trading is getting very, very thin. The concept is simple. A prediction market lets you buy and sell contracts on the outcome of real-world events. Will the Fed cut rates this month? Will it rain in New York on Thursday? Will the U.S. strike Iran before the end of February? Each contract is priced between zero and one dollar, and the price is supposed to reflect the crowd's estimate of the probability. If you buy a "yes" contract for thirty cents and the event happens, you get a dollar. If it doesn't, you lose your thirty cents. It's a bet, but the industry prefers the word "contract." The two companies that dominate this space are Polymarket and Kalshi. Polymarket was founded in 2020 by Shayne Coplan, a twenty-two-year-old NYU dropout coding from his Lower East Side apartment during COVID lockdowns. His idea was that if you made people put real money behind their predictions, you'd get better forecasts than polls or pundits could produce. The platform runs on cryptocurrency, specifically a stablecoin called USDC on the Polygon blockchain. It blew up during the 2024 election, processing over three billion dollars in bets on the presidential race alone, and today it's valued at nine billion dollars. Peter Thiel's Founders Fund is an investor. Vitalik Buterin, the co-founder of Ethereum, is an investor. And Donald Trump Jr. sits on the advisory board, through his venture firm 1789 Capital. Kalshi took a different path. Founded in 2018 by Tarek Mansour and Luana Lopes Lara, Kalshi spent six years getting approved by the Commodity Futures Trading Commission as a designated contract market. That distinction matters. Instead of operating on crypto rails offshore like Polymarket, Kalshi is a federally regulated exchange with full identity verification. It's backed by Sequoia Capital and Andreessen Horowitz, it recently signed a media partnership with CNN, and it's now valued at eleven billion dollars. What they don't advertise as loudly: over ninety percent of the activity on Kalshi is sports betting. Not elections, not interest rates, not weather. Sports. If that sounds like it should be regulated by state gambling commissions, you're not wrong. Traditional sportsbooks like DraftKings and FanDuel have to get licensed state by state. They're currently legal in thirty-eight states and D.C. They pay taxes. They follow local gambling laws. The legal age is usually twenty-one. Kalshi operates in all fifty states, is open to anyone over eighteen, and pays nothing to state gaming commissions. The argument is that because its contracts are technically "swaps" regulated by the CFTC under the Commodity Exchange Act, state gambling laws don't apply. It's the same product with a different label. Maryland's gaming regulators put it bluntly in a cease-and-desist letter, calling it "indistinguishable from the act of placing a sports wager." Seven states have now sent cease-and-desist letters to Kalshi. Massachusetts issued a preliminary injunction. Nevada did too. Courts have split on whether federal regulation preempts state gambling law, and analysts expect the Supreme Court will eventually have to settle it. Meanwhile, the information asymmetry isn't limited to geopolitics. Last month, Giannis Antetokounmpo became a shareholder in Kalshi, the first active NBA player to directly invest in a prediction market. The deal was signed on the day of the NBA trade deadline, one day after a Kalshi market on whether Giannis would be traded closed with twenty-three million dollars in volume. For months, Giannis had been dropping contradictory hints about whether he wanted to stay in Milwaukee or be moved, while money flowed through a contract on his own future. Then the deadline passed, he stayed, and the next morning he announced he was a part-owner. The NBA allows players to hold up to one percent in sports betting companies. Commissioner Adam Silver called it "minuscule." But the pattern is the same one playing out in geopolitics: someone with more information than the market is positioned to benefit from that information, and the rules haven't caught up. But the athlete question is minor compared to what's happening in geopolitics. And the Khamenei market shows exactly how messy this can get. When the Iranian Supreme Leader was killed in the strikes on Saturday, Kalshi had an active market on whether he'd be ousted by the end of March. Fifty-four million dollars had been traded on it. People who bet "yes" expected a payout. Instead, Kalshi paused trading and announced it would refund fees rather than pay out, because the company says it doesn't list markets "directly tied to death." Traders were furious. One user on the Kalshi Discord wrote, "Getting rugged on a hundred percent correct prediction because of a fine-print death carveout is wild." Others called the platform a scam. But the alternative isn't great either. If Kalshi had paid out, it would be a company explicitly profiting from correctly predicting an assassination. There's no clean answer when the product is a financial contract on whether someone lives or dies. Half a billion dollars was traded on Polymarket on contracts tied to the timing of the Iran strikes. "Magamyman" didn't just get lucky once. Israeli police are investigating the account, and a reservist from a sensitive unit in the Israeli Air Force noticed the pattern: this same user correctly predicted the exact date of the October 2024 strike, the Syria invasion, and now the February 2026 attack. In January, a different anonymous account made four hundred and thirty-six thousand dollars betting on the Maduro arrest hours before it happened. In February, Israel charged two people for using classified military information to place bets on Polymarket during the twelve-day war last June. Senator Chris Murphy called it "insane that this is legal." He's introducing legislation to ban it. An SEC official at the financial reform group Better Markets said prediction markets are "promoting opportunities to bet on events that can only be seen as a proxy for war or assassination." The response from prediction market advocates is surprising. They argue that insider trading is actually the point. The theory is that if someone with real information bets on an outcome, the price moves, and that price movement becomes a signal to everyone else. It surfaces information faster than the news can. In theory, the market becomes a real-time gauge of what's actually going to happen. In practice, it means that people with access to classified military plans can turn state secrets into cash on a platform where the president's son is an advisor. And the "wisdom of crowds" argument has another problem. A Fortune investigation found that roughly a third of Polymarket's volume on the 2024 presidential election appeared to be wash trading, where the same user trades with themselves to inflate activity and create the illusion of market confidence. Polymarket declined to comment on those findings. So the crowd whose wisdom is supposedly being harnessed may, in significant part, be one person talking to themselves. And the regulatory picture isn't encouraging. The DOJ and the Consumer Financial Protection Bureau both dropped active investigations into Polymarket after the Trump administration took office. The CFTC, which is the only federal body with authority over these platforms, recently withdrew proposed rules that would have restricted prediction markets and announced it would instead support their "responsible development." The new CFTC chair has signaled the agency may actively challenge states that try to regulate Kalshi. The cop on the beat is holding the door open. Polymarket's defense was revealing. In a statement, the company said that prediction markets "create accurate, unbiased forecasts" that are "invaluable in gut-wrenching times like today." After talking to people directly affected by the attacks, the company said, "we realized that prediction markets could give them the answers they needed in ways TV news and X could not." That's the pitch. Better information, faster, through the wisdom of the crowd. But the crowd, in this case, includes people who appear to know what's going to happen before it happens. And nobody is checking. The pitch for prediction markets has always been that they make information better. Put money behind opinions and the truth rises to the top. But the truth rising to the top looks a lot different when the people placing the bets already know the answer. A twenty-two-year-old built a platform from his apartment to fight misinformation. Five years later, it's a nine-billion-dollar industry where someone can bet on a war seventy-one minutes before it starts, collect half a million dollars, and disappear behind a username. The crowd has wisdom. But some members of the crowd have classified briefings. Stay informed, stay curious, and we'll see you tomorrow.